Fed Meeting to Guide the Dollar
After a volatile reaction in EUR/USD following the European Central Bank meeting last week, investors will look to the Federal Reserve for the latest monetary policy developments in the United States.
The Fed meets on Wednesday and a quarter basis point rate cut is largely expected due to ongoing concerns over the economy and uncertainty from a trade war.
However, trade war concerns are subsiding a bit as communication from the White House over the past few weeks suggest positive progress. On this note, overall sentiment in the markets is positive as the S&P 500 is on the verge of breaking to record highs, and bonds fell sharply last week.
The improvement in sentiment has lessened the odds of easing this week, although the money markets continue to show about an 80% probability of an interest cut at Wednesday’s meeting.
Last week, the ECB delivered a 10 basis point rate cut and introduced fresh quantitative easing. ECB President Mario Draghi emphasized the importance of fiscal stimulus and that monetary policy alone won’t get the job done. Some analysts have translated this to mean that the central bank is essentially tapped out after implementing several unconventional policy measures.
The rally in EUR/USD post-ECB carried momentum behind it which signals the potential for a reversal. At the same time, a critical resistance level has held the pair lower.
Resistance comes in the form of a declining trendline that originates from highs posted towards the end of June. EUR/USD tested the area on Friday and has since edged lower.
The first major level of support is found at 1.1060. This level was prior resistance that held the pair lower on a few attempts earlier in the month. In the event the exchange rate falls below it, the next area of interest falls at 1.1035.
- EUR/USD is paring some gains after a sharp move higher last week.
- Major support falls at 1.1060. A break exposes 1.1035.
- The Federal Reserve will meet on Wednesday and analyst are looking for a quarter-point interest rate cut . There is typically a slowing of volatility ahead of the meeting.
This article was originally posted on FX Empire
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